Synergy Delivery and Cost Excellence
We will realize the synergies we promised at the announcement of the merger and we will excel in cost leadership using a systematic rigorous cost control mindset.
- Significant cost saving potential has been uncovered with the merger; synergies have been announced and action plans are in place.
- Cost excellence is in our DNA and is essential to success in our industry.
- Driven by our performance organization, we will use all the available levers to control and reduce our costs.
- To achieve this we will among other things drive a lean organization structure and leverage our scale in shared services and IT.
- We are confident we can deliver the total run rate synergies of CHF 1.5 billion by the end of 2017, a year ahead of schedule.
- As part of our ongoing cost improvement campaign, we will aim for 7 percent SG&A as a percentage of sales, one percentage point better than the synergies target stated at the time of the merger.
- Our target is to end with a positive price/cost delta after ongoing cost improvement initiatives and before taking into account the cost synergies.
One of the main reasons behind the Lafarge and Holcim merger was the significant synergy potential created by combining the two companies. This potential is being realized. We now expect to reach the announced CHF 1.1 billion run rate of EBITDA synergies and our target total run rate synergies of some CHF 1.5 billion, at the end of 2017, one year ahead of schedule. In 2015 we have already achieved CHF 130 million in synergies.
Our synergies are expected to come in equal measure from all parts of our operations. For example: We expect CHF 220 million in synergies from operational performance, through such measures as the employment of cement productivity best practices and the optimization of our network in overlapping countries. We are reducing our procurement spend by CHF 380 million, or some 2 percent, through renegotiating our top 2,000 contracts, switching to best suppliers in all our regions, and implementing a category management approach.
Some CHF 220 million of synergies will come from growth and innovation initiatives, including best-practice rollouts, optimization of our customer and geography mix, cross-selling actions, and product portfolio optimization.
We also anticipate synergies in Selling, General and Administrative (SG&A) expense of some CHF 280 million by combining and rightsizing our headquarters, streamlining operations in overlapping countries, and leveraging regional shared services. Over the long term, our goal is to bring SG&A down to approximately 7 percent of sales.
Focus on cost competitiveness
Synergies are just part of the picture. To be truly successful over the long term, we need to achieve cost competitiveness. That is why we are driving a mindset of continuous productivity gains and operational leverage, ongoing optimizing of our fixed cost base, and employing operational excellence at scale.
As examples from all our regions show, our pipeline of synergy initiatives is full of promise. Whether combining the complementary aggregates products offering of Aggregate Industries UK and Lafarge Poland in Europe and thus optimizing our logistics flows (see below), leveraging the two companies’ complementary footprints in the United States, or optimizing clinker supply in Malaysia, every part of our new business has been examined to identify synergies and secure cost leadership.
At the heart of this is a systematic, rigorous process which we have in place, as well as the motivation and creativity of our teams. Cost excellence is in our DNA and will remain a competitive advantage for us now and in the future.
Glensanda: Aggregates from the far north
If you want to visit the Glensanda granite quarry in Scotland, you’ll need your sea legs. That’s because Glensanda, which belongs to LafargeHolcim’s Aggregate Industries subsidiary, is only reachable by boat.
That’s not the only thing that makes Glensanda unique. With over 700 million tonnes of reserves and a capacity of nine million tonnes per year, it is the largest granite quarry in Europe. Most importantly for customers, Glensanda boasts some of Europe’s highest quality granite, making its products the first choice for customers throughout the region. Indeed, Glensanda has turned out to be a perfect complement to several of the Group’s operations, including its substantial presence in northern Poland.
That’s because northern Poland has lots of sand and gravel, but hardly any crushed rock of the kind Glensanda supplies. Combining the two makes for a complete high quality offering of aggregates and other products.
This has led to close cooperation between the two organizations, part of LafargeHolcim’s logistics optimization and synergy efforts in Europe. And it is only the beginning, as there are other opportunities as well to create value for the company as a result of the excellent portfolio created by the combination of the two organizations.